Morning, everybody. Thanks so much for joining us. I'm Elizabeth Anderson. I'm the Health Care Services and CRO analyst here at Evercore. I am very happy to be joined by a man who needs no introduction, Jim Foster, Chairman, President, and CEO of Charles River. And so, you know, let's start with the 8-K that you guys put out this morning. That was very nice to see. For those of you who haven't seen it, it mentioned that Book-to-bill has continued to improve each month since the beginning of the third quarter. And although the holidays may impact demand, you're encouraged by the positive momentum and upward trend since the middle of the year. So, you know, can you expand on that and sort of say, you know, what's been going on and sort of what are some of these trends that you've been seeing?
There's been a real focus on our book-to-bill.
Yes.
By you and everyone else. And so we have had sort of sequential improvement in book-to-bill since the beginning of the third quarter, including the last couple of months. So we were pleased to see that.
Nice.
Since it's an area of focus for shareholders and analysts alike, we thought that we would sort of give an update on that.
Thank you.
We're not going to give the exact book-to-bill number, nor are we going to predict what's going to happen in December and January.
Sure.
We hope that continues. The holiday times are a little bit funky, or maybe not. I mean, we'll see what happens. So, you know, the issues sort of behind all of that, which are, you know, I think the pharma companies who are dealing with a patent cliff and have been reducing some of their costs, you know, demand from them has been better, particularly good in the first quarter of this year. Biotech funding has definitely invigorated in the third quarter. And I guess last month was the second best month in the history of biotech in terms of funding. So those are good backdrops to all of this. And so obviously, if the funding paradigm continues to improve, that's a good thing. And that should invigorate more work.
So we just wanted to shine a light on that because it's definitely been a focus of our shareholder base and obviously something that we're. I mean, the only, the primary headwind that we've had for the last 18 months is biotech demand, and that's 100% sort of affiliated with access to capital or lack thereof.
Yes, that makes sense. Do you think that that's a result of some of the clearing of, maybe partial clearing is the way to think about it, overhang of some of the regulatory situations in terms of drug pricing? Is there something else you would point to, or you just think it's sort of broad-based and more a reflection of that?
Yeah, no, I think it's more a reflection of spendability. I think it's, I think we definitely have clients that have discovered drugs and intended to work on them and have paused that, sort of parked them. And I think there's a fair amount of frustration in our client base. So if you develop five drugs against a certain target and you only have money to work on two of them, maybe you're working on the wrong two.
Right.
Maybe the ones that you've parked are the ones that will hit the target more effectively. So, you know, we've seen this movie before. Biotech funding sort of waxes and wanes. The fact that last month was the second best month ever could portend continued improvement in the future. We hope so, but we have to see, and we're not going to, I think we made the mistake in 2024 of predicting when the market, the stock market would turn. It's a foolish thing to do, so we're not going to make any predictions. Let's let it happen. Let's let the demand invigorate, and then we'll talk about it.
Okay. No, that makes sense. And obviously, you focused on your comments on biotech because that's where the inflection happened. Anything to call out in terms of the pharma demand environment more generally? Stable? Anything?
Yeah, I mean, it's quite stable. It was very robust in the first quarter. You know, pharma has been spending a lot of time reducing their cost structure and trying to figure out what the optimal portfolio is to take care of an impending patent cliff. We have very big footprints, I would say, with all the big pharma companies. And most of them, we have long-term contracts. When I say long-term, you know, two, three, five-year contracts where pricing and volume are locked in. We really like to have a larger share of wallet with those folks. So it's a more stable base for us in some ways. They're obviously extremely well-funded. Money is not the issue for them. And while pharma drove our growth forever, the principal driver of our growth probably for the last 15 years has been biotech.
You know, we got into the high teens several years. There's not enough pharma revenue, even in the aggregate, to offset the sort of sluggishness with biotech.
Yep. No, that makes sense. And I think one thing that has confused people, at least on the investor front, and maybe on your front as well, is that, you know, there's been this sort of delayed decision-making timelines. Have you seen any sort of change in that dimension of things in terms of people going and going, or is that, you know, it's the funding, but maybe we're still seeing some portion of that as well?
I think we're seeing some pickup in the decision-making. So proposal volume is way up for both biotech and pharma, which is great to see. Cancellations are way down for both segments, which is good to see. So I think we're seeing more proposal volume, and it's probably taking a month or two for those proposals to turn into bookings and for the bookings to turn into work actually starting. So yes, I think there's more confidence by both sets of clients.
Okay, that makes sense. You know, in the 4Q guidance that you guys put out with the 3Q earnings call, you talked about some additional hiring and DSA. Can you talk about your plans there and how that sort of lines up with the demand expectations, which you sort of just answered the question on that portion?
Yeah, so I think that when we first talked about that, that was a bit confusing to some people because demand has been off and there's some modest decline in revenue, so why would you be adding more people? It's pretty basic. Number one, it's not that many people. Number two, we're adding them at our lab service as part of our business, so the associated laboratory work that we do with a safety study, which is actually quite strong, and sometimes we do work when we don't do the study, and sometimes we do some clinical samples, even though we don't do the clinical work, so we've been investing significantly and organically in our lab services capability, and we can talk about this later, I'm sure, but we flag that as an area of potential M&A, so, yeah, so that's been an important area of growth for us.
Okay.
Also, you know, we have some turnover, so we have some openings. We wanted to replace those. I guess the kind of simple answer is that we are operating well in excess of our operating plan, which is why we've raised our guidance a couple of times. We need to have enough people to do the work. It's just as simple as that.
Okay, that makes sense. I think in that sort of bucket of questions, at least post the call, you also mentioned higher spot NHP costs. You know, how do we think about that versus obviously you have the most vertically integrated supply chain in that regard. So can you just talk to us what the dynamics are driving that?
Yeah, again, a little bit confusing. So I would say that NHP costs have been reduced. So we're generally spending less, and we do have more supply opportunities in multiple geographies, and we're going to continue to strengthen that as time goes on. So good place to be. But since we're operating well in excess of our operating plan, as I said a moment ago, we're buying more NHPs than we had originally anticipated, or maybe that we've originally contracted for or provided for. And so going out in the spot market, it's more expensive. I mean, supply is okay, but not so plentiful, and suppliers will take advantage of that opportunity if we need the animals to charge us more.
That makes sense. And speaking of job openings, though, not related specifically to DSA, how is the CFO search process going?
Good. So we have one of the big search firms working on that. We've seen a bunch of potential candidates, at least on paper, and we've interviewed a bunch. And we want to have a fabulous person, so we're going to do this thoughtfully and thoroughly and take our time, but the process is off and running.
Great. Okay, that makes sense. You know, how should we think about, maybe just sticking with DSA for one more question, like the levers on the DSA margin, if growth remains sort of subdued in 2026, can you talk about where you see the $70 million in incremental costs coming from that you announced on the three Q call? And, you know, what do you think about that sort of opportunity set as we look forward to next year?
Yeah, I mean, it's a variety of areas. Some of that is labor. Some of that is procurement, being much more efficient with procurement. Some of that is offshoring, some things that we've done historically internally. Some of that's automation. I mean, we're always trying to drive efficiency. Those savings are not going to all drop straight through. I mean, a lot of that will be used to offset sort of inflationary costs. So something that we have to continue to do to be more efficient.
Okay. No, that makes sense. You also mentioned plans to divest about 7% of revenue on non-core assets. How do you think about what the criteria was that sort of got you to that determination? And how do you think about the sort of reinvestment opportunities for the proceeds?
So we went through a very, very thorough deep dive in our whole portfolio, very objectively. As you know, we have four new directors. The benefit and the power of having new directors is that they're totally objective. They don't have any sort of historical, I don't know, allegiance to anything why we bought a business, what we initially anticipated, for instance. And so they've been very helpful in the process. So, you know, we looked at everything very objectively and kind of on a zero-based basis. What was the original, what did we originally anticipate, and how's it going, and where is it going? And by the way, we've done this before, maybe not quite at this depth, but we've had businesses. We had a clean egg business, for instance.
Oh, yeah.
It was great until it wasn't. We had a research model business in Japan that was great until the Japanese economy wasn't so wonderful. And so we have periodically divested some businesses. And so this isn't all that different, except it was a deeper dive and doing more at once. So we have some headwinds with some businesses that we don't think are going to ameliorate. We don't think that the original expectation of where these businesses would go, what the demand quotient would be, what the technology would look like, the competitive dynamic, or sort of the power of a particular modality in a couple of cases, what the geographic competitive dynamic would be. So things change. And so we don't think these things are going to continue to improve. And so we are out now with some bankers looking to divest certain assets to alleviate the headwind.
We'll use those, the funds that we get from there to do whatever, to do M&A, probably, maybe to buy back stock or not. You know, we look at that every quarter, certainly to pay down debt, and conversely, I think you may have asked this, conversely, we have several things that we're looking at to buy.
Okay.
Do you want to talk about those?
Sure.
Okay. So, and I would say that a couple of things that we're thinking about divesting could be deemed as non-core. And so, you know, I think it's really important when you're looking at your portfolio to try to stay, if possible, with your core assets, stuff that you know like the back of your hand. And by the same token, you don't want to be so risk averse that you don't move into adjacencies if the technology is powerful enough that invigorates your portfolio. So, you know, I would not want to be that black or white. So we flag several areas. We flag bioanalysis, which is one of our lab services businesses. When we talk to clients, when I talk to clients or any of our people talk to clients and you say to them, "What else would you like us to do?
What would you like us to do more of?" Almost without exceptions, every client says bioanalysis. And so there are opportunities for us to do more large molecule bioanalysis and actually clinical sample bioanalysis, which tends to be hundreds of thousands of samples, very high margin, very, very aggressive throughput. So some clients would prefer that we do all of that, both the preclinical and the clinical stuff, and have the capability to do large and small. We actually have a pretty big business in bioanalysis now and in lab services generally. We are investing organically. It just takes a while.
Okay.
It takes a while to build. It takes a while to hire the people, and so we're doing that. We will continue to do that. I'm sure it'll be some part of our CapEx for next year, but we're also looking to do some straight-up M&A, so that's important.
Okay.
We're going to look at some non-animal in vitro NAMs technologies, some of which we already have. There's one thing in particular that we've had a deal on that we probably will buy a small acquisition. We have other technology deals that we're working on. You know, we've always looked at this landscape. Some of these technologies look better than they are practically.
Okay.
So the ones that are practical that could be adjunctive to animals or in some cases maybe replace animals, particularly for discovery, we want to be in those businesses. There's also geographically, there's some businesses that we have in the US that we ought to have in Europe, some things in Europe that we ought to have in the US. And we are generally relooking at China. So just for people that don't know the history, just quickly, 15 years ago we had a, well, I'm going to back up before that. So we built a toxicology facility in China in 2006, probably prematurely. 2008, the economy blew up, clients pulled back. A couple of years later, we sold that. Then we had a deal 15 years ago to buy Wuxi. Most people know that. It was banked and signed.
We had a little bit of a shareholder revolt and we had some activist activity. It's a deal that we didn't do. Imagine what Charles River would look like today if that deal got done. Probably the only good idea I've actually ever had, Elizabeth. We didn't get to do it. But I think it was sort of prescient. It really was a good idea because China's beginning to innovate, which is quite interesting, a little bit surprising, quite interesting. And so when the Wuxi thing blew up, we kind of paused and we pulled back. And then a few years later, we went back into China to look at options. There were some M&A options, but the valuations were sky high and just inappropriate. The multiples were crazy and the deals would have been dilutive, so we didn't do anything.
Yeah.
And so fast forward the tape to today. We just had a bunch of people go to China just to kind of look at the landscape and talk to people on the ground that could be potential acquisitions or partnerships or folks that just knew the Chinese landscape that could advise us on, is that a smart thing for an American company to do? And so I would say without getting ahead of my skis here that we're thinking seriously about what, if anything, we should do in China in addition to our research models business, because two things are happening. One is, three things are happening, actually. One is that, and you know this probably better than I, there's lots of assets coming out of China that are being bought by US and European drug companies. That's totally new. And at least to me, that's a surprise.
So these folks that we thought were just copying everything are innovating really well. It was a bit of a brain drain for some of these great U.S. academic institutions, and they're going to play, number one. Number two, obviously the patient population is four times bigger than the U.S. And most of the work for drugs that will be utilized in China, the work has to be done in China. So we have a research model business there. It's small, but it's doing quite well. But if we want to play in that environment, we're going to have to have something on the ground there. And then I don't want to overstate this, but there's definitely some work, probably with less well-funded small biotech companies that we probably don't even get to bid on the work. And if we do, it's probably a small amount.
But if you are strapped for cash and you'd like to work with Charles River, but whatever, but you can go to China and have the toxicology work be done at 20% of the cost or whatever, kind of 10%-50% what we're seeing, you may go. So some of that work is going there. Will that continue? I don't know. And some of the expertise that China didn't have, veterinary pathology is a great example that I always use. Even if you can't get a degree in veterinary pathology over there, you can virtually get that work done by having somebody in the U.S. or Europe read the slides. So it's becoming a different environment and geography just in terms of its potential. So I have no idea whether we can get a deal done, whether we can afford a deal, whether there's regulatory, environmental, political issues or not.
But I think we'll study it.
But it sounds like from that, there's a wealth of opportunities in these different areas.
I think there is. I think China will be a bigger market probably than the U.S. And I hope that, you know, I think one of the great treasures of the U.S. business is the biotech industry. And I hope that we don't sort of lay back and let China get a lead.
Yeah. Makes sense. Can I double-click on one thing you said on the NAMs side?
Sure.
You said that there's a lot of cool-looking technologies that, you know, I'm not asking you to name anyone specifically, but like that maybe don't pan out as well. And there's sort of some things that are maybe like more impactful short term. As investors are kind of learning about that market incrementally and wrestling through there and sort of all the changing dynamics, what would you flag as sort of like the thing to call out that says like, you know, this has better short-term applicability or these are the kinds of things that you should make sure that these companies are addressing?
Yeah. It's a big subject and a big question. So let me back up. So first place, none of this is new. The drug development industry has been working on alternatives to using research models forever. We have a bunch of companies that approach us every year and say, "We have this technology. It's going to put you out of business. You need to buy this company." They all look very interesting. It's very, very interesting science coming out of some august academic institution or sometimes the government. And they just practically don't pan out. They're not comparable. They're certainly not replacements. And so we have, I think we've indicated we have $200 million worth of revenue that are NAMs related. We have NAMs across our whole portfolio, as I indicated a few minutes ago.
We have a couple of potential M&A opportunities, and we will continue to look for those and make some investments. So we have an AI deal. We have one of our companies looks for off-target effects. It's all non-animal-based. We have a portion of our safety studies that the control groups don't need to be animals. Immunotox we can do without animals. Some of the skin absorption tests we can do without animals goes on and on. And by the way, I'd say every big drug company has had their own either proprietary or non-proprietary in vitro capabilities, mostly for discovery.
And so we're quite confident that over time, these NAMs will have an increasing role in discovery that will help clients get to a lead compound faster, not focus on molecules that have the lowest propensity to get to the market, that'll save the clients lots of time, should accelerate speed, should help to get more drugs into the clinic for sure, and maybe get more drugs into the market eventually. That would be beneficial to our tox business, actually, if more good stuff was coming through the pipeline. So we're looking very carefully for those technologies. If we actually think they are seriously adjunctive or maybe replacements for discovery work, we'll buy those companies. We don't see the NAMs having much of an impact at all in safety testing. You know, the FDA has come out with this pronouncement about.
That was going to be my next question.
Okay.
There you go.
Happy to help.
There you go. Keep going. Yes.
Happy to help, and that's really nothing new, but it's interesting to sort of unpack that, which is, they've come out and they sort of rediscussed it yesterday with some guidelines just saying that not required for certain types of monoclonal antibodies to do long-term NHP studies, so we do three-month NHP studies and sometimes six-month NHP studies, so they're saying that if you do the three-month studies and you have other supporting data, like you don't have dangerous off-target effects and your PK work has panned out, et cetera, et cetera, that you probably don't have to do the longer-term work. Now, what that really is, is a recapitulation of something that's been going on for a while, so we have a lot of clients that only do three-month monkey studies.
We have some that only do six-month monkey studies, and we'll do that regardless of what the FDA says because they think it's better from a safety profile point of view, and that's going to be their decision, obviously, and monoclonal antibodies, you know, it's a very discrete, refined, specific tool to get to a very specific target, so there's not a lot of off-target effects. There's not a lot of variability, so I think that's an appropriate place for the FDA to unpack that. Is that going to spill over to small molecules? We don't think so. Is it going to spill over into other types of large molecules? We don't think so, but we'll see, but I think over the next decade, you'll see the NAMs have some discernible impact on discovery.
Yeah. And it seems like from what you're saying, there was no sort of scope increase or anything like that. So we're just seeing sort of a well-trodden pathway down this monoclonal antibody-specific.
Yeah. Just a further clarification on what the clients are already doing and what the FDA is already supporting, just to make it clear. And I think that's fine.
Yep. No, that makes sense. And what are you seeing clients do on your side to sort of, are they reacting? Are they waiting till we get more guideline updates? Or does it only matter, you know, are they changing any of the behavior?
I would say that the clients, pretty much without exception, support the notion that if possible and when possible and when appropriate, they would rather not use animals. To look at the systemic multi-organ effect of swallowing a drug or being injected with a drug, it's virtually impossible to do that with some sort of alternative, at least with the technology now. Even for targets for which there are drugs, but for unmet medical needs where there are no drugs, like all the neurodegenerative diseases, there's no way anyone's going to simulate that. We don't even know what causes Alzheimer's or ALS. So how could we simulate that? And why would you take a drug that was based upon some computer simulation? So I can't say never because how would I know never? It just seems unwieldy and dangerous.
So our clients are saying what I said a moment ago, which is that they have some proprietary technologies that they're using for discovery. They applaud what the FDA is saying, but they have no desire to do anything differently in terms of the way they do their animal studies right now because they are maniacally and appropriately focused on safety profile.
Okay. No, that makes sense. Maybe looking at sort of discovery and safety probably separately, how do you think, you know, as we've gone through this funding cycle and the pandemic and the pharma reprioritizations and biotech and stuff, like have their needs, ultimately the things they're asking for from you changed? You know, like do we think about it in terms of like do they want to outsource more, less, different types of things? Like how would you sort of say, and you're happy to answer discovery and safety separately if it should probably make sense.
Yeah. So discovery is complicated. So you've got sort of four things working here.
Sorry, it was a big multi-part question.
Okay. So one of the things is there's a fair amount of discovery work that's gone to China. Chinese are doing really good work for a dramatic reduction in price. And some of it's also going to India, beginning to go to India more so. Safety is not going to go to India, but chemistry is and discovery is in large measure. So that would be one thing. Second thing, discovery has been somewhat of a challenge for us to sell because the initial reaction of the client is, "Yeah, we do that. We don't really understand what you mean by discovery." And typically the discovery we do, I would say, is more kind of sort of large volume work after the drug actually has been identified, the target, and you come up with a drug against it.
All the, I would call it sort of later stage discovery development work, like transplanting human tumors into nude mice and then challenging them with a chemotherapeutic agent would be a great example of that, so you've got the proprietary nature of the work, you've got the Chinese work, and you've got sort of clarifying for the client what we want to do for them. I think once we clarify that, pretty straightforward for us to get the work, but probably only 25%-30% of discovery is outsourced right now. We've said historically that that will probably get to maybe 40%-50%, but I have no idea of what time, and I do think a bunch of that's going to go to China. Definitely discovery is somewhat of a feeder into safety. We have these integrated multi-part discovery initiatives that we have with our clients.
Sometimes they ask us to actually find the target and actually ask us to help design the drug against the target. So we have a fair amount of that work. And then safety is, I think, a totally different situation where even the big drug companies, some still do, but very few of them still do their own safety work, and very few of them want to do their safety work. And even the ones that still do their own safety assessment work, their capabilities are trivial compared to ours. I mean, they're just much smaller, much less depth of science, much less expertise. As I said, we have a little bit of that work going to China for people that are very price sensitive. So that's probably, I don't know, 55%-60% outsourced. We think it'll get to at least 80%-85%.
I used to say it'll get to 100%. That's probably an overstatement because I do think that some of the European drug companies, particularly some that are family-owned, will keep doing the work themselves.
Okay. That makes sense. Maybe switching to the manufacturing segment, you know, where are we on the CDMO journey going back towards sort of a better growth footing? You know, how do you think about the potential for positive revenue growth in 2026? And how have you sort of continued to work on the client diversity mix there going forward?
Been a complex and challenging business for us, to say the least. It's replete with very new cutting-edge science, which it's a learning curve for us and our clients and the regulators. I think that what we thought the initial demand curve would be for CDMO work is not as robust as we thought. As you know, there's a fair amount of fits and starts and obviously some concern about the safety profile of these drugs. You're messing around with people's genes and cells, and I think the FDA is concerned about the sort of untoward effects, and of course, you've had these patients with brain bleeds and some deaths and blah, blah, blah, so you've got out of 3,000 potential compounds that we're all working on, probably two-thirds of those are preclinical. It's only 30 drugs that have been approved, and some of that's been really rocky.
So it's been a rockier road than we thought. The assets that we bought weren't as good as we thought, just in terms of quality facilities and staff and regulatory expertise. We've fixed all of that. So the facilities are terrific right now. We've recapitulated the staff. We've had regulatory audits by the FDA and comparable European folks, and they've gone extremely well. And lots of audits by our clients. We have some commercial work. You know, we lost our largest commercial client, which we're obviously not happy about, but it happens. And we have the work is primarily clinical, and every clinical client assumes the drug will get to market. It could be commercializable. So they're talking to us about that. We kind of have three buckets. We have plasmid DNA, we have viral vectors, and we have gene-modified cell therapy manufacturing.
We've got at least a commercial client in sort of all three of those buckets, which is promising. But it's a business that continues to have some challenges for us. We felt it was really important to be in this business because our clients expect us to have expertise in all modalities. And so this is obviously a very promising modality. You know that some of the blood-borne cancers, people at stage four cancer are being cured in two or three weeks with some cell therapy work. So the promise is extraordinary, but the actual therapy is very complicated. It's even tough on the patients. And so what we've heard, you know, we have a bunch of KOLs that provide us with input.
What we've heard is probably like every modality, like monoclonal antibodies and the RNA stuff and the immunotherapies. We're probably in the first generation of cell and gene therapy science, and they say there'll be at least a second generation, probably a third, so that's interesting. That's promising. That means that there's going to be a continued learning curve. I think the playing field for us from a competitive point of view, even though we lost some work to a competitor that did more CDMO work than we, what we find out by sort of public disclosures is that we all have the same types of challenges and the science is complex and that we're all sort of learning our way through this, so I think that business is in a good place right now.
That's great. And maybe speaking of the manufacturing segment, how have you seen the biologics market change over the past few years? You know, you have a bunch of scaled players now in that market. So how would you characterize the competitiveness and sort of what the go-forward opportunity is for Charles River there?
Yeah. So it's been, it's a really important business for us. I mean, you're testing large molecules, which is at least half of what the FDA approves every year. It could be more, it could be in the future nuanced to be more than half, but it's at least half. It is, as you said, the most competitive situation we have. All of our competitors are companies as big or bigger than Charles River. We're all capable of doing the work. We're all about the same size in terms of the amount of biologics work we do, approximately. We had a big pop in COVID in that business, just a huge pop with high teen growth and escalating operating margins and then sort of pulled back after COVID.
Some hesitancy now. Hesitance is not the right word. Some softness in demand right now, totally related to biotech funding. So it's been kind of a slow year, begun to improve in the third quarter. And we still think it's a really important business for us. You know, what we like about the whole manufacturing segment, I don't think I haven't said this today, is I like the Barbell effect of a bunch of businesses that are some businesses in discovery, a bunch of businesses in preclinical, and then all the manufacturing ones are really clinically based.
So as the funding sort of ebbs and flows and moves, we love it when it's sort of equal spending in preclinical and clinical, but when it shifts around like it has been for the last 18 months, heavy into the clinic, for instance, it's nice to have some assets that are clinically related.
Yep. No, that makes sense. And maybe the same question about the microbial market. You know, that's a market you guys have obviously a very nice presence in and have had for years. What do you see as sort of the next stage of drivers in that market over the next couple of years?
So just an extraordinary business that we've owned almost for three decades with incredible operating margins and sustainable high growth, pure IP, probably the only business we have that's really, really pure IP. We have some iterations now that are, this is a technology that uses the blood of horseshoe crabs as the reagent. There's now sort of non-horseshoe crab-based technology that I think we have a leadership position. So this is an amazing business because the testing, which is of medical devices and injectable drugs, is required by law. So you're constantly sampling drugs after they've been manufactured to make sure they didn't become contaminated. So it's sort of the gift that keeps on giving. Our technology is a razor and razor blade technology. So we have this huge installed base of machines, large and small machines around the world, and constantly using these disposable cartridges.
And so the net result of this is it's very high margin. We keep improving the automation of manufacturing of the machines and the cartridges and sort of how we run that business. So I do think we can continue to improve the margin. So really important business for us. We do have some serious competitors in that business, companies that are sort of comparable to us. I think they're way behind us from a scientific point of view and from an IP point of view.
Got it. And maybe talking about going back to some of what you were saying, a little bit about the CDMO, but maybe more broadly across your business, where are you seeing the most success in your cell and gene therapy portfolio today? And as we sort of move into the current cycle and maybe go into the next generation of drugs, where is Charles River's real differentiation for that set of drugs? And sort of do you have the full set of capabilities that you want in that? Do you have the right set? Like how do we think about that?
Yeah. I think the capabilities, as I said, we have these three buckets. I think that we are playing well from a quality of technology point of view in all three buckets. So there's no need to do any more M&A in that space. I don't think there's any need to, anytime soon, to expand the facilities. As I said, we've invested significantly in them. They're in very good shape right now. We have enough incremental capacity to take on additional work. So it's really all about these clients that are moving from a sort of clinical genre into a commercial genre to stay with us and to have significant needs and more. The goal would be to have a more stable revenue-generating cadre of clients that order several years out.
You have much more stability, you have much more predictability, and I'm sure you have much better margins.
Got it. No, that makes sense. When we're sitting here in December 2026 on the same stage, what are you going to be most excited to have done in 2026 as sort of accomplished? And how would you think about sort of from a longer-term perspective into 2027 and beyond the broader opportunities for Charles River?
Yeah. So I think short-term, we want to complete the divestiture of these businesses, which we've said we're confident we'll do that in the first half of this year, so feel good about that. We have several M&A opportunities that we're working on right now that we will complete sometime in 2026 as well. Write down our core, the three or four things that I mentioned earlier. Continuing to refine the portfolio from an efficiency point of view, reduce our costs, reduce our G&A costs as a percentage of revenue, get some stuff offshore, more investments in automation, in digitization, for sure, we will do that. You know, we're going to continue to look at, you know, we have a committee of the board that looks at best use of capital every quarter, and that's everything from debt repayment to share buyback to M&A or all of the above.
I feel very confident that, and we'll have a CFO at some point. I feel very confident that we're going to be able to do all of those things. I also didn't mention that besides M&A and some deals in the NAM space, we have sort of two groups looking at this. We have actually a committee of our board that works on NAMs, two of the marquee people on that committee. We have the former CEO of Sloan Kettering and the former dean of Duke Medical School. Very heavy medical doctors who understand the space well. We have an internal group, which is a bunch of Charles River experts in NAMs, but we have a new leader of that group who is a former number two person in the FDA who's an expert in NAMs.
Really doing quality science, being familiar with the landscape, making the proper investments in the NAM space, I think will be very important. I think beyond 2026, I think we have a huge market opportunity in the core businesses. That's not to say that there aren't some adjacencies that wouldn't make sense, but I think further investment in the core, greater depth of science, greater geographic expansion like China, as I said earlier, I think would hold us in good stead.
Well, that seems like a good place to end it. So thank you very much, Jim.
Thanks.